Geithner defends Libor actions

Timothy Geithner came under fire Wednesday from lawmakers who wanted to know what he did to head off the now-emerging Libor manipulation scandal when he was president of the New York Federal Reserve Bank in 2008 —when red flags were first going up.

Appearing before the House Financial Services Committee to present the Financial Stability Oversight Council’s annual economic report, Geithner told members of the panel that he had taken the “fully appropriate” actions by alerting regulators in both the U.S. and the U.K.

Story Continued Below

“We were absolutely aware,” Geithner said, responding to committee chairman Spencer Bachus’s first round of questions about Libor. “We were aware of the risk that the way [the rate-setting process] designed created not just an incentives for banks to underreport, but gave them an opportunity to underreport. And that was a problem.”

The Treasury secretary assured lawmakers that in 2008, he personally conveyed his concerns to the governor of the Bank of England by sending a “very detailed” memo outlining changes that should be made to reform the Libor-setting process.

From the moment that President Barack Obama nominated the former head of the New York Fed to head his Treasury Department, Geithner has sought to dispel the image of a Wall Street ally that helped oversee the Fed’s bailout of American International Group.

The slew of questions Geithner faced from both sides of the political aisle Wednesday served as a reminder of the criticism the Treasury chief has faced for his role in dealing with the aftermath of the financial meltdown.

Rep. Jeb Hensarling (R-Texas), for example, asked why major decisions about programs tied to the 2008 bank bailout law were made using “a number that you know is being manipulated.”

“How can that possibly be the best choice?” the congressman said.

Geithner stood by his decision.

“We were concerned about this and we did the important and very consequential thing of bringing it to the attention of regulators,” Geithner said. “I think that was the right choice back then.”

London’s Barclays bank was fined hundreds of millions of dollars last month by U.S. and U.K. authorities after it was accused of manipulating LIBOR, a benchmark interest rate. In 2008, during his tenure as president of the New York Federal Reserve Bank, Geithner had warned the head of the Bank of England about the need to reform the rate-setting process.

That Geithner had expressed concerns about possible LIBOR manipulation years ago has raised questions about how much the Treasury secretary knew about the problem and what he did to try to fix it. Geithner has maintained that he took appropriate actions by notifying British officials, but some of his critics have signaled that his role in the controversy deserves further scrutiny.